Understanding China’s 13th Five-Year Plan

China’s policymakers are starting to reveal details about the direction of the country’s next Five-Year Plan (FYP), the central government blueprint for China’s long-term social and economic policies. While the 13th FYP (2016-2020) is still in the early planning stage, sources say it will focus on boosting economic development during a period of slowing economic growth. Though little is known about the new plan, foreign companies in China are already thinking through ways to engage policymakers during the planning process and set investment priorities. The US-China Business Council (USCBC) explores some common questions about the 13th FYP for companies that are interested in participating in the planning process (USCBC is the publisher of China Business Review).

What is a Five-Year Plan?

Five-Year Plans are social and economic development blueprints that were adopted in China in 1953 and modeled after the Soviet central planning process. The plans are drafted and implemented by central, provincial, local, and district governments, along with industry regulators—each often has their own FYP. The central FYP is drafted by the National Development and Reform Commission (NDRC) and lays out specific economic targets like GDP growth rates and social development goals in areas such as healthcare and education. Targets are established in consultation with experts from academia, industry, and other government ministries. The targets guide Chinese regulators throughout the five-year implementation period of the plan.

What is the timeline for developing the 13th Five-Year Plan?

Official discussion of the 13th FYP began in April 2013, and is expected to continue until the delivery of an initial draft in October 2015. That is when the NDRC typically begins drafting the plan, based on stakeholder input and public comment. To date, NDRC and other official source have remained relatively quiet about planning, and official updates have been posted on an official planning website. Public participation has been limited, aside from setting up a channel to solicit public comments for the 13th FYP on WeChat—a popular social networking platform in China. A finalized plan is expected to be approved at the National People’s Congress meetings in March 2016. The plan is typically released to the public shortly after.

Do Five-Year Plans still matter?

In general, FYPs are important in illustrating government priorities and setting a direction for policies. According to publically available data and a mid-term review of progress on the current 12th FYP, China is on track to meet the majority of its social and economic goals set through the end of 2015. Targets already or likely to be achieved include maintaining an average GDP growth rate of 7 percent, increasing services share of GDP by 4 percentage points, raising urban and rural incomes by an annual average of 7 percent, increasing urbanization by 4 percentage points, among a number of other economic targets. However, according to a mid-term review conducted in 2013, China is behind on targets to raise non-fossil energy as a percentage of primary energy, energy efficiency, and carbon reduction targets. With less than one year to achieve targets set in the plan and faced with moderating economic growth, some agencies, such as the Ministry of Environmental Protection. Based on past experience, a detailed official assessment of the implementation of the 12th FYP may be released at the end of Q3 or in Q4 2015.

What does this mean for foreign companies?

Actionable government targets and priorities in the central FYP and corresponding local and industry plans have the potential to shape—or dramatically change—the business models for foreign companies in China. Broad economic growth targets and initiatives in the plan have an impact on the overall business environment, while local and industry plans can drive the direction of government support and future growth.

What will the next five-year plan focus on?

The NDRC has released little about the content of the 13th FYP, but some government officials have already made statements about the plan. Continued economic development, with an emphasis on reform and innovation, will be the top priority of the 13th FYP, according to Premier Li Keqiang. Another area of focus, says Li, will be addressing “deep-seated” problems—which could refer to the ongoing anti-corruption campaign.

Meanwhile, a January 12 editorial by former NDRC head and current Director of the National Energy Administration Zhang Guobao indicates that the 13th FYP will focus on one key challenge: continuing China’s economic growth at a relatively fast past and maintaining “healthy development.” Zhang said that ambitious reforms laid out in November 2013’s third plenum will also be reflected in the plan, which seeks to double average annual incomes by 2020 from 2010 levels. Experts say these goals should be attainable if China continues to grow at a steady rate of 7 percent, and others note meeting the goals would be challenging that any growth target under 6.5 percent, suggesting the central government set an average annual GDP growth target of 6.8 percent in the 13th FYP. Other areas of focus Zhang suggests will be carried over from the current FYP include growing domestic demand, upgrading industrial infrastructure, and reforming the country’s energy pricing structure.

It is likely that China will continue to expand central government debt to support emerging industries, according to Zhang’s editorial. He argues that China should continue to adopt a liberal monetary policy and invest in areas such as healthcare, elder care, and education, despite the piling up of government debt. Zhang also says that China should continue to invest in the manufacturing sector, even as it tries to bolster the country’s growing services sector.

What about local plans?

Local governments are also in the process of planning for respective local FYPs to correspond with the central government plan. Local government plans, while often rolling out later than their central counterpart, often have more specific economic targets and goals that impact the local business environment and incentive programs.

District governments also base planning on a five-year structure. In Shanghai, for example, different districts have different planning processes. Shanghai’s Huangpu District, which is home for a number of multinational companies, is soliciting public comments through its official website.

What about industry-specific plans?

While information is limited at this time, the Chinese government works closely with regulators to draft a number of industry-specific FYPs in fields like financial services, environmental protection, and chemical industry development. These plans can have very detailed goals and are often circulated one month to one year after the release of the central plan.

How can foreign companies engage in the planning process?

As foreign companies engage with policymakers drafting central and local plans, they should note the following:

Engaging directly with the drafters of the main 13th FYP within the Planning Department of the National Development and Reform Commission is very difficult, but local and industry specific regulators are often more open to industry feedback to help ensure the quality of their plan. A number of USCBC member companies are working with industry regulators such as the Ministry of Industry and Information Technology, the National Energy Administration, and other agencies to find out more on their plans for drafting sector specific FYPs and how companies can support the research and drafting process.

Some USCBC member companies are also engaging with influential think tanks or agencies like the State Council’s Development Research Center, the Chinese Academy of Social Sciences, or the Central Party School to learn more about general principles associated with the 13th FYP and discuss how company goals might aid China’s future development. While these interlocutors may not be involved directly in the drafting, they are well-respected institutions that may be consulted for perspective on broader strategic planning. In addition, they might have further insights on avenues companies might use to effectively participate in the development process of the 13th FYP.